By Natsuko Waki
LONDON, Dec 5 (Reuters) - World stocks rose on Wednesday
after this week's sell-off lured some investors back, helping
the dollar in a market still concerned about the credit turmoil
and escalating tensions in the money market.
Investors are hesitant in taking big risks ahead of a slew
of monetary policy decisions over the coming week by key central
banks including in the euro zone, UK and the United States.
Investor risk appetite has been fragile since August as the
fallout from U.S. subprime mortgages hits banks globally and
threatens to derail global growth.
World stocks managed to regain poise in October, hitting
record highs early in November before coming under pressure
again. The direction of equity markets holds key for other asset
classes, including currencies.
"There is a big debate in the markets as to whether equities
are due a substantial year-end rally (or not)," said Teis
Knuthsen, head of FX research at Danske Markets in Copenhagen.
"It has a very significant impact on risk taking in
financial markets including currencies. If we get this equity
rally, it will probably result in a strong dollar and the under
performance of the yen."
The dollar rose 0.8 percent to 110.56 yen <JPY=> while it
gained 0.3 percent to $1.4722 per euro <EUR=>.
Others struck a more cautious note.
"It would be premature to say that we have reached a floor,"
said Dominique Mace, chief investment officer at Barclays Wealth
Managers France.
"Volatility will remain high as the interbank lending market
is still very tense as banks are looking for financing to close
the year. We might also get a few more negative surprises,
particularly when the banks will report their fourth-quarter
results."
The FTSEurofirst 300 index <.FTEU3> was up 0.9 percent,
lifted by mining shares, including BHP Billiton which rose on
hopes of more consolidation. MSCI main world equity index
<.MIWD00000PUS> was up a quarter percent on the day.
Shares in embattled Northern Rock <NRK.L> fell 4 percent to
top the FTSE 100 <.FTSE> losers after the Daily Telegraph
reported that the UK government might nationalise the lender if
it failed to reach a deal with a private buyer.
Emerging sovereign spreads <11EMJ> tightened 3 bps while
emerging stocks <.MSCIEF> were up 0.8 percent.
The December Bund future <FGBLZ7> fell 21 ticks.
RATES VERDICTS
In the coming week, the European Central Bank, the Bank of
England and the Federal Reserve decide on interest rates.
There are growing expectations, still not a majority though,
for an interest rate cut in Britain, while investors unanimously
expect the Fed to cut rates next week, probably by a quarter
point although some are calling for a 50 bps cut.
"The UK economy is expected to experience a notable slowing
in 2008, as tighter credit conditions for both households and
businesses add further restraint to the 125 bps tightening in
interest rates between autumn 2006 and summer 2007," Merrill
Lynch said in a note to clients.
"We think the balance of risks has shifted towards a
December rate cut. As the economy weakens, we expect further
cuts in February and May."
Elsewhere, U.S. light crude <CLc1> fell half a percent to
$88.79 a barrel as OPEC oil producers leaned towards keeping
output steady. Gold <XAU=> stayed above $800 an ounce, while
platinum hit a one-week high.
(Additional reporting by Toni Vorobyova, editing by Mike
Peacock)
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Keywords: MARKETS GLOBAL